OREANDA-NEWS. April 13, 2015. Fitch Ratings says today that China's plan to cut a resource tax on iron ore will have limited impact on local miners as their production costs remain significantly higher than their global peers.

On 8 April 2015, China's State Council said it planned to reduce raw iron ore resource taxes for local iron ore producers to CNY4-10/ton from CNY8-20/ton from 1 May 2015 as iron ore prices remain low. The Chinese government adjusts resource taxes for iron ore depending on the market conditions to support producers.

Although the tax cut may increase low-cost miners' profitability in China, the impact is likely to be limited and short-lived as the cost benefit will be eroded by competition. Mining and processing costs for local miners are higher compared to global peers due to China's low-grade iron ore. For instance, in 2014, the iron ore concentrate cash production cost for Hebei-based Hengshi Mining Investments Limited (B+/Stable) was CNY362.5/ton (USD58/ton) and for northeast China-based China Hanking Holdings Limited (B+/Negative), the cost was CNY389/ton (USD62/ton). In comparison, Australia's Fortescue Metals Group Limited (BB+/Stable) had a cash production cost of USD34/ton.

Moreover, Fitch expects China's steel demand to peak within the decade and any support provided to sustain iron ore production in China will only delay a much-needed correction of the global iron ore oversupply situation.